From The Editor | November 29, 2016

Are CMOs Sufficiently Serving Biotechs?


By Louis Garguilo, Chief Editor, Outsourced Pharma

Are CMOs Sufficiently Serving Biotechs?

Six months ago, Louis Demers (pronounced “Louie” in the French of his native Quebec City) brought his outsourcing experience – including at a J&J company and Genentech – to the newly created role of director of development and manufacturing outsourcing at XOMA, a drug discovery and development company with a portfolio of innovative therapeutic antibodies. His mission: Turn this historically self-reliant biotech into a reliable outsourcer.

Demers knows what he’d like to see in contract development and manufacturing organizations to accomplish this. For example, they should be networked with other service providers, and in mission-critical alignment with Xoma.

Can he get what he wants? Can any outsourcing leader at a biotech today?

A Triangle Of Strategic Partnerships

We’ve witnessed biotechs become uber-successful over the years, and today there’s a proliferation of virtual and startup drug development models. Without service-provider assistance, little of this would be happening. At the same time, we’re increasingly hearing from biotechs about CMOs being much less than enabling.

Demers’ thought process – and CMO search parameters – can help us in understanding both these scenarios, and the real challenges of finding the right service partners. 

We can start here: Demers isn’t into complexity. He’ll do whatever he can to keep it out of his supply chain, even as his company continues to outsource more.

“In terms of having networks that are less complex, I’d like to see CMOs that have created strategic partnerships between themselves,” says Demers. Although Xoma is not in the business of ADCs [antibody-drug conjugates], he cites that sector as a good example. “There, an antibody manufacturer, and a drug substance manufacturer, will partner with a conjugation specialist, and also have a cytotoxic-fill facility that they work with.”

Demers describes these organizations as forming “a triangle of strategic partnerships,” providing a more seamless offering to their ADC clients. “In my MAB [monoclonal antibody], non-cytotoxic world, I’d like to see either a single CMO that has all the elements, or CMOs that have these strategic partners across service areas,” he says. With either of these scenarios comes the advantage of streamlined tech and information transfer. “We don’t have to create needless tech transfers and new protocols between the different stages of development and manufacturing.”

Regarding the one-stop-shop ideal he mentions first, Demers knows – as so many biotechs do – it’s a limited if not non-existent subset. Even those providers claiming they’ve captured the universe of specialties often require outside expertise.

There’s also a size issue, which can start to impact a CMO’s business model. In other words, CMOs have to grow substantially – and serve many masters – if they are attempting to envelop the long chain of drug development and manufacturing services. Bigger providers may have more services, but are they built to serve smaller clients? (We’ll get back to this in a moment.)

Despite these questions and challenges, Demers says his key search parameter to simplify even a relatively small supply chain of a biotech, remains in place. He explains: “While I’ll draw from our own internal technical expertise, for practical purposes I’m the outsourcing department. I need to ensure our network stays streamlined and manageable. However, this has to be accomplished without compromising deliveries, timelines, or of course, quality. It can’t lead to a lack of price leverage, or to cost disadvantages. The goal is to keep the work complexity at that optimal minimum.”

“I’m trying to do this by setting up strategic relationships that fit our operation and business philosophy,” he adds.

Do They Actually Exist?

But are the opportunities for these strategic relationships available to today’s biotechs?

“CMOs and we biotechs may operate in the same space, but we’re not in the same business,” Demers says. “I mean this in the sense that the service provider’s first goal can be, for example, capacity utilization. Ours is more speed to the clinic. We are based on different business models. Somehow, we’ve got to diagram that right spot intersecting mutual needs.”

That intersection may be hard to find. A recently published article on more mutuality in sponsor-provider relationships received this reader rebuke:

“I have been reading your exuberant articles about partnering Pharma and Biotech sponsors with CMOs … Our experience has been diametrically opposed to the picture you've painted … As a small biotech with a viable biologic product, we signed a deal with a top tier CMO to manufacture our BDS in the U.S. in 2011 … We gained approval of our BLA in 2016, and then were informed by our CMO they were closing our manufacturing area and we had up to 5 years to transfer our process to one of their international sites, or somewhere else ... That's a 30 million dollar, three year project we never expected to undertake. On top of this, larger sponsors with deeper pockets appear to have locked up the capacity out to 2020, so we also face a manufacturing shortage ...”

This is a critical report from the front lines. First, bigger (“deeper pocket”) sponsors competing with biotechs for capacity have always presented a challenge, but a lack of capacity – or the right capacity – seems exacerbated today. Add that it appears biotechs are being squeezed by consolidation in the CMO industry, forming “Big CMOs” with operating models built less around the smaller customer. Big, it appears, is the enemy of biotech.

Size Might Be Disposable

Demers, too, has experienced “Big CMOs” focusing more on filling their large-scale production capacity with larger clients and big-volume material needs. “They’re geared more towards a larger pharma, or maybe a smaller pharma or biotech if there is a highly predictable commercial operation upcoming.”

Yet Demers insists there are service providers out there that are flexible, can operate at different demand levels, and with smaller clients.

“I wouldn’t say it’s necessarily size that’s always the concern,” he says. “If a CMO has the vision to meet the needs of the emerging biotech – and for example in our case serving the orphan drug industry – then it is a viable option no matter the size.”

One specific attribute Demers looks for today in a service provider – big or small – is disposable technology. “We need flexibility for speed,” explains Demers. “To that extent, we’re fully committed to disposables versus stainless steel. We’re elated this technology is now well accepted across the industry, and we look for a CMO that’s adopted this equipment platform.”

Disposal equipment is a key advancement. But it won’t dispose of the increasing tensions between today’s virtual and other biotech models, and the consolidation at CMOs. Even more, the natural evolution of pharmaceutical markets will continue to have an impact. Demers mentions the orphan drug industry above – a growing market target that revolves around smaller volumes, less capacity needs, and greater flexibility.

For decades, the advancement of smaller-sized drug developers has been fueled by the growth of service-provider models. Xoma itself is a biotech with a living history of this parallel trajectory. In part two of our discussion with Demers, we’ll take a closer look at the course of those lines, and whether they can form today’s needed biotech-provider intersections.